Mulayam cheer ahead of Manmohanomics

New Delhi: In only his second address to the nation in the past four years, Prime Minister Manmohan Singh called on the people of India to strengthen his hand in building a strong and prosperous India, even as he admitted, for the first time, that the country finds itself in a dire economic situation.

Analysts and economists have said this for at least a year, but this was the first time any minister in the government has admitted there is a problem. (And, for the record, it wasn’t just any minister; it was the Prime Minister).

Lashing out at opponents who have, literally, taken to the streets to protest the government’s moves, including the increase in diesel prices and the easing of rules on foreign investment in retail stores, Singh defended his government’s recent decisions.

Prime Minister Manmohan Singh admitted, for the first time, that the country finds itself in a dire economic situation.

“Please do not be misled by those who want to confuse you by spreading fear and false information. The same tactics were adopted in 1991. They did not succeed then. They will not succeed now,” Singh said in his address. “We have much to do to protect the interests of our nation, and we must do it now.”

His pre-recorded speech, first in Hindi and then in English, was aired across TV channels at 8pm and came on a day when the government won the political battle, with Samajwadi Party leader Mulayam Singh Yadav saying he would support it to keep the “forces of communalism” at bay.

Repeatedly referring to 1991, when India faced a balance of payments crisis and had to usher in a wave of reforms, Singh said he didn’t want to wait till the economic situation degenerated to that level to act. And as Prime Minister, he reiterated, it was his responsibility to take tough measures and this, he stressed, was the time for tough measures.

“In a sense of policy context, it was not bad,” said Pratap Bhanu Mehta, political analyst and president of Centre for Policy Research, a Delhi-based think tank. Pointing out that Singh had effectively linked fuel prices, the fiscal deficit and the investment atmosphere, Mehta added that “there was no attempt to explain the deep paralysis in the last three years. It was a decent policy memo, but it had no grasp of the largest context of the crisis—both institutional and economic”.

Still, Balveer Arora, a former head of political science department at Jawaharlal Nehru University, said the speech was “a smart move”. It was timeSingh took the people of the nation into confidence, he added.

Singh’s speech had three parts.

In the first, he admitted that India was in trouble, although he stressed that it was sticking to its social objectives at a time when the US, the European Union and even China were seeing their economies slow. By doing the right things, he reasoned, India could get out of the rut it finds itself in.

While the government has continued to stick with its growth estimate of between 6.5% and 6.7% in 2012-13, economists warn that India could see this slipping below 6%, maybe even to around 5.5%. They have also warned that the country will likely exceed its estimated fiscal deficit of 5.1% of gross domestic product this year.

In the second part of his address, he defended his government’s recent decisions, notably the ones on diesel, cooking gas and foreign investment in retail.

“Money doesn’t grow on trees,” Singh said, even as he pointed out that international oil prices have risen, and that India imports around 80% of its oil. The government, he explained, tried to insulate customers from the increase in oil prices, but the oil subsidy zoomed—to Rs.1.4 trillion last year and a possible Rs.2 trillion-plus this year “if we had not acted”.

The result, Singh detailed, would have been disastrous: government spending and inflation would have risen, and investors, both domestic and global, would have deserted India.

“Our companies would not be able to borrow abroad,” Singh said, referring to the possible downgrade of the country by credit rating agencies and the impact it would have on Indian firms trying to raise money overseas. And unemployment would have risen too, he added.

Indeed, Singh said, if the government had wanted to price diesel at market rates, it would have had to increase its price by Rs.17 per litre. It did so by only Rs.5, he added, and this was only fair because the government didn’t want to subsidize companies using diesel and rich people driving sport utility vehicles (SUVs) powered by the fuel. As for cooking gas, he said the cap of six on the number of subsidized cylinders a household could avail wouldn’t affect the people who most needed the subsidy because that’s the maximum they use a year.

Singh then went on to defend his government’s decision to allow overseas investment in multi-brand retail by pointing out that large Indian companies have been present in organized or modern retail for some time, and that the result hasn’t been the death of corner stores, but the opposite of this.

“Our national capital, Delhi, has many new shopping centres,” he said. “But it has also seen a threefold increase in small shops in recent years.”

Singh presented an impressive list of benefits that would come with foreign retailers: cold chains and warehouses that would lead to a reduction of wastage, better prices for farmers, and lower rates for consumers, apart from creating more jobs.

States that didn’t want to allow foreign retailers, he said, needn’t do so, although they had no business getting in the way of the benefits that farmers, young people seeking jobs, and consumers would derive. The message between the lines: they do not know what they are missing out on.

Opposition parties expectedly attacked the speech.

S. Ramachandran Pillai, a Communist Party of India (Marxist) politburo member, said, “All these reform measures are not at all justifiable. It increases the burden of the common people. FDI in retail will be disastrous to the interests of the people. People will not be convinced by his speech.”

And the Bharatiya Janata Party’s Tarun Vijay took exception to Singh’s remark about opposition parties misleading people. “The Prime Minister did not show any respect to the majority of the political parties, which are opposing the FDI and the diesel price increase. His speech was written by some millennium speech writer, who is not aware of ground realities,” Vijay said.

In the final part of his speech, Singh presented his government’s economic achievements —an average 8.2% growth since 2004—and its plan. Growth, he said, would benefit the common man. Promising to ensure the growth would be inclusive—the poll mantra of the Congress in the 2004 and 2009 elections—Singh exhorted people not be taken in by his opponents. They had tried to oppose the reforms of 1991, he argued, and see where those had taken India.

Among the people whom Singh directly addressed on Friday, the view was mixed. The government may need to work harder if it wants to return to power in two years.

Eby James, an engineering student in Coimbatore, said the speech was not convincing. “The PM said much of the diesel is used by SUVs. But what about public transport and goods vehicles. Won’t that lead to a price rise?”

Deepak Tanwar, a doctor in New Delhi, said although he was not convincing, the PM came out and spoke “like a gentleman, not arrogant like (Union ministers) Kapil Sibal and P. Chidambaram”.